Russia Wants Euros – Not Dollars

euro symbol with blue background and stars in the flagThe Central Bank of Russia will have to decrease the share of dollars in its foreign currency reserves if Russia sells oil and gas for euros. That is precisely what President Vladimir Putin promised to German Chancellor Gerhard Schroeder. A senior Deputy Finance Minister said that Russia was going to raise the share of euros, currently at about 25 percent, in its reserves by another 3-5 percent. As further collateral evidence, The Russian Central Bank published a report on its financial status. Realistically, the structure of the reserves should correspond to the structure of foreign debt payments. According to this report Russia is currently making about 30 percent of its debt payments in euros. The reserves also correspond to the structure of foreign trade and Russia trades mostly in dollars. The Russian Central Bank will act to minimize risks, bringing the structure of the reserves into line with the structure of foreign trade. Some Russian oil companies however have already shifted to euros. They are dumping dollars for Euro and Gold. The only place these extra dollars can be absorbed is right here at home. Incidentally, the U.S Treasury issued a similar report. It shows that the U.S. government now owes nearly 59% of the nation’s GDP to debt-holders. In the next three months alone, $1.2 trillion in principal, and another $53 billion in interest, will come due. With tax receipts of only $2 trillion per year it appears that government borrowing will soak up these excess funds. The real cost, however, is inflation. No surprise if we see the dollar at $1.25 to the 1.00 euro and gold at $450 per ounce by year’s end.

Leave a comment

Your email address will not be published.